The Labor Market Cools as Trade Tensions Mount

Fewer jobs created, higher wages, and ongoing uncertainty.

Apr 6, 2018

After a strong wave of hiring in February, the U.S. labor market cooled in March, adding a less-than-expected 103,000 jobs. This modest growth comes at a time of mounting trade tensions and continued volatility in equity markets. While job creation came in at the lowest-level in 6 months, unemployment remained at a 17-year low of 4.1 percent, and the underemployment rate fell from 8.2 percent to 8 percent. Annual wage growth, which struggled to rise above 2.5 percent for much of 2017, rose 2.7 percent in March.

Graph showing how job growth slowed in March 2018

Top Takeaways from the Report

Hiring slows, but the fundamentals are steady

After a stronger-than-expected February job gain, employers slowed hiring in March. While consensus estimates predicted roughly 175,000 jobs to be added in March, the survey showed only a gain of 103,000. January’s job growth of 239,000 was also revised down to 176,000, while February’s additions were increased from 313,000 to 326,000 jobs. Despite the slowdown of hiring in March, the labor market remains robust and has added jobs for 90 consecutive months – the longest streak on record. Workers are also seeing a boost, as annual wage growth continues to remain above 2017 levels. Wages rose slightly from 2.6 percent in February to 2.7 percent in March from the year before.

The unemployment rate remained at a 17-year low of 4.1 percent, a level at which it has been stuck for the past 6 months. The underemployment rate, however, which also includes those in part-time work looking for full-time work and discouraged workers, dropped from 8.2 percent to 8.0 percent. This is a good sign that workers are finding better-suited jobs. The labor force participation rate, which measures those working or looking for work, fell slightly from 63.0 percent to 62.9 percent.

Uncertainty mounts

Despite a healthy labor market, many uncertainties remain for the economy going forward. Since announcing wide-ranging steel and aluminum tariffs early last month, the president has continued to engage in tit-for-tat negotiations with China. The continued one-upmanship between the U.S. and China, in terms of trade penalties, could escalate into an all-out trade war. This would most certainly have economic consequences for both countries and could possibly derail negotiations on other trade agreements. The uneasiness surrounding trade will continue to put pressure on equity markets and could force the Fed to recalculate their interest rate path.

Growth by Select Industry

The professional and business services sector added the largest number of jobs in March at 33,000. The sector has added 502,000 jobs over the past year and grown by 2.5 percent.

Employment in education and health services grew by 25,000 jobs over the last month. The health care and social assistance sector grew by nearly 34,000 jobs, which offset a decline of 9,000 jobs in educational services.

Manufacturing continued to grow, adding 22,000 jobs in March. The sector has added jobs for 8 consecutive months.

The Bottom Line – The U.S. labor market remains healthy and will likely continue to perform well over the coming months. The fear of rapidly rising inflation, which was sparked by January’s high wage growth number, appears to be cooling and the Fed seems to be content with its current rate path of 2 more rate hikes this year. A big question mark remains over the president’s dealings with China and the potential for a trade war. Any drastic measure by either nation will likely have a negative impact on both economies.


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